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Brazil’s reluctance to accept an Israeli ambassador who is a West Bank colonist has set off a diplomatic crisis and led to concerns in the Israeli government that the clash could encourage pro-Palestinian activism against it.

The appointment four months ago of Dani Dayan, a former head of the Jewish colony movement, did not go down well with Brazil’s left-leaning government, which has supported Palestinian statehood in recent years.

Most world powers deem the Jews-only colonies on Palestinian land as illegal.

The regime’s previous ambassador, Reda Mansour, left Brasilia last week and the Israeli government said on Sunday that Brazil risked degrading bilateral relations if Dayan was not allowed to succeed him.

“Israel will leave the level of diplomatic relations with Brazil at the secondary level if the appointment of Dani Dayan is not confirmed,” Deputy Foreign Minister Tzipi Hotovely told Israel’s Channel 10 TV, saying Dayan would remain the sole nominee.

She said Israel would lobby Brasilia through the Brazilian Jewish community, confidants of President Dilma Rousseff and direct appeals from Prime Minister Benjamin Netanyahu.

Brazilian government officials declined to comment on whether Rousseff will accept the nomination of the Argentine-born Dayan.

But one senior Foreign Ministry official said: “I do not see that happening.”

The official, who asked not to be named because he was not authorised to speak on the matter, said Israel would have to choose a different envoy because the choice of Dayan has further worsened relations that turned sour in 2010 when Brazil decided to recognise Palestinian statehood in the West Bank, East Jerusalem, and the Gaza Strip, which Israel occupied in a 1967 war and colonised.

Israel quit Gaza in 2005 but claims occupied Jerusalem as its “indivisible capital” and wants to keep swathes of West Bank colonies under any eventual peace deal with the Palestinians.

Tensions rose last year when an Israeli foreign ministry spokesman called Brazil a “diplomatic dwarf” after Brasilia recalled its ambassador from Israel to protest a military offensive in Gaza.

Brazil’s government was also angered by the announcement of Dayan’s appointment by Netanyahu in a Twitter message on August 5 before Brasilia had been informed, let alone agreed to the new envoy as is the diplomatic norm.

Over the weekend, Dayan went on the offensive to defend his nomination, telling Israeli media that Netanyahu’s government was not doing enough to press Brazil to accept him. Dayan said not doing so could create a precedent barring colonists from representing Israel abroad.

Emmanuel Nahshon, spokesman for Israel’s Foreign Ministry, said ties with Brazil were “good and important”, noting Israel’s recent opening of a new consulate in Brazil and the business opportunities for Israeli security firms during the Olympic Games to be held in Rio de Janeiro in August.

Israel has a considerable role in providing avionics technology for Brazil’s aerospace and defense industry.

Celso Amorim, a former Brazilian foreign and defence minister, said on Friday that the diplomatic dispute over Dayan’s appointment showed that “it is time the Brazilian armed forces reduced their dependence on Israel.”